Types of Long Term Care Insurance

By Compuquotes Team on March 27th, 2008
Long Term Care

Long term care insurance is a growing industry in the United States. The premiums for long term care insurance policies have stayed relatively steady over the last few years, however the coverage costs for long term care is quite expensive and that cost is rising. The cost of insurance will be even more considerable for people who wait until they are retirement age to purchase long term care coverage.

Generally, there are two types of long term care policies that are offered by insurance companies, non-tax qualified (NTQ) and tax qualified (TQ). Non-tax qualified long term care insurance was originally called traditional long term care insurance, and this type of insurance has been sold for over three decades. This type of insurance policy usually includes a trigger, called a �medical necessity trigger'. This means that the doctor or a doctor in combination with someone from the insurance company that holds the policy, can state that the patient requires long term care for any medical reason and the long term care insurance policy will pay. The United States Treasury Department has not concluded the status of benefits that are received under non-qualified long term care insurance policies, so the taxability of these insurance policies is open to some interpretation. So, in some cases, people who receive benefits from non-qualified long term care insurance could be facing a large bill come tax time for these benefits.

Tax qualified long term care insurance policies don't have the medical necessity trigger. These policies require that the person need care for a minimum of 90 days and are unable to do at least two daily activities of living, such as bathing, continence, dressing, eating, transferring, etc., without some substantial assistance. The policy also require that a doctor provide the care plan, or that for 90 days the person needs assistance of substantiality for cognitive impairment that's been labeled as severe and that a doctor provides a care plan. These benefits are non-taxable.

There are far more tax-qualified long term care insurance policies than non-tax qualified, for the simple reason that many people want to be able to use the tax deductions on a tax-qualified policy. These issues surrounding tax, the deductions and payments are quite complex and takes some serious research to determine the benefits of each policy in its own right, as it applies to you and your situation. The benefit triggers on non-tax qualified policies are much better than tax-qualified ones, and there are laws that have restrictions on when a policy holder can receive benefits from their tax-qualified long term care insurance.

It's best to really do your research before you sign on the dotted line. When you've purchased a policy, the insurance company cannot change the language of the policy and if you have an individual policy, it is guaranteed renewable for life. Your insurance company cannot cancel your long term care insurance for health reasons; however the benefits can be canceled for non-payment.

It is best to talk to your insurance agent and find out which type of policy is best for you and your situation - it also never hurts to get a second opinion on your long term care insurance policies to be sure that you are getting what you need, and that your agent isn't just trying to get more money out of you.

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